ERGEG South-West Electricity REM: First achievements and market coupling

In Spring 2006, the European Regulators' Group for Electricity and Gas (ERGEG), decided to launch the Regional Initiatives, towards a competitive Single European Energy Market, creating three gas and seven electricity Regional Energy Markets (REMs), namely the South-West Electricity Regional Energy Market (ERGEG SW Electricity REM), comprising the existing Iberian market, MIBEI, and France. To implement this regional market the very first priority task is to deal with cross border capacity issues namely harmonizing capacity allocation and congestion management methods. The "Explicit Auction method" is being currently applied to the interconnection between France and Spain, where capacity is allocated on annual, quarterly, monthly and daily basis through explicit auctions held by transmission system operators. In the "Implicit Auction method", capacity allocation results from the daily market with a single market price if there is enough cross border capacity. When cross border capacity is not enough, prices will be different and cross border exchange will be limited to the available capacity. In this case the remaining demand will be met by bids from its own area - the "Market Splitting". MIBEI applies a mix of Explicit Auctions, held jointly by both TSOs, and Implicit Auctions held under the daily and intraday Iberian power exchange. During the first months of implementation, Market Splitting has applied most of the time, resulting in a MIBEI with two different prices and with a congested interconnection between the two countries. The "Market Coupling Method" can be treated as an evolution of the "Implicit Auction Method" when there are different interconnected areas with two or more different power exchanges and two or more possible price areas. This paper also presents the first achievements of the ERGEG South-West Electricity REM and future Market Coupling, explaining the existing congestion management methods.